2013 Was Almost As Hot As 2005-2006

“After removing the effect of inflation, prices rose almost as quickly in 2013 as they did in 2005-2006, the peak of the boom.”

I knew 2012 and 2013 were hot but that’s kind of scary hot.

Home Prices Are Not Directly Included in CPI

The Consumer Price Index (CPI) does NOT incorporate home prices directly. The CPI uses the estimated “rental equivalent” to estimate changes in housing prices. Rents, however, are far more stable than home prices as the graph below shows.

That means homeowners who buy during a rapidly rising real estate market face a lot of housing cost “inflation” that isn’t incorporated into the CPI inflation rate. That means the Consumer Price Index underestimates inflation during times of rapidly rising home prices.

Oh yeah. One question I was asked this week by a potential buyer in SF – ‘what’s the best way to contact someone in your building to see if they might be interested in selling?’ My answer: put yourself in their shoes. So don’t confront them directly in the hallway or anything like that. Try an email or better yet a handwritten letter. They probably receive inquiries from time-to-time and mostly ignore them. So try to stand out in the politest way possible, and write the kind of letter that you’d like to receive yourself.

By the way, in the SF market this summer we saw streams of multiple offers over asking, all cash, contingencies waived upfront, buyer pays all closing costs. And people young and old keep saying this one word that has somehow gripped our generation in the funniest way, “crazy”.